Building credit can seem like a real catch-22. You need credit to get credit, but how are you supposed to get credit if you don’t have any at all? Don’t worry: It’s not quite as black and white as that, and there are a number of things you can do to start building credit even if you’ve never had a loan or credit card before.
Keep reading to learn about five methods to build credit if you have zero credit history, including how each option works and the risks it comes with so you can make the best decision for your personal financial situation.
Why Build Your Credit?
Before you get to those tips, you might wonder why you should build your credit at all. Having zero credit history can put you at a significant disadvantage financially. Here are a few things you might face if you don’t have any credit:
- Not being able to buy a home in the future.
- Not being able to rent a home or rent the apartment you really want now.
- Having to pay large deposits to open utility accounts.
- Not being able to get cell phone service or equipment on credit with the cellular provider.
- Being turned down for a job that requires a credit check as part of the background check.
- Facing restrictions when renting a car.
- Not being able to get a credit card or not being approved for a credit card with good perks.
5 Ways to Build Your Credit
The best way to build credit is to get some and then show you can manage it responsibly. Here are some ways you can do that even if you don’t already have a credit history as well as a few other things you might do to build your credit now.
1. Get a Savings Account-Secured Credit-Building Loan
Some lenders provide specialty loan products designed to help you build credit. These are not usually meant to be loans to help you fulfill a cash flow need in the moment because you may not actually get funds from these loans immediately. Here’s how they work:
- You apply for a credit-building savings account-backed loan. The lender puts the amount in a savings account that is locked, which means you don’t get immediate access to that money.
- You make agreed-upon payments, often a certain amount per month, to pay off the loan. How long this takes depends on your terms and the loan size. Common scenarios typically involve payments of 6-12 months.
- The lender reports your timely payments to the credit bureaus, helping you build a positive payment history.
- Once you make all payments as agreed, the savings account is unlocked and you get access to the money.
The upside of this type of credit-building loan is that it doesn’t usually require a good credit score or even any credit score. The downside is that you don’t get immediate use of those funds and you do pay a fee for the service.
2. Get a Secure Credit Card
A secured credit card is another option for building your credit. It can be an option for those with no credit or for those who only have installment loans in their credit history. Lenders want to see that you can manage multiple types of debt, so having both installment loans and revolving credit accounts, such as credit cards, on your history can help improve your score.
A secured credit card requires you to put a deposit down. That deposit secures your initial credit limit. For example, if the deposit is $250, your credit limit is $250. After around six months of timely payments and responsible card management, you may be able to get a credit limit bump and/or get your deposit back.
3. Ask a Cosigner to Help You Out
If you need to get a car loan, you might ask someone you trust if they will cosign for you. If that person has good credit, they can help you secure the loan at a decent rate. Make sure the lender in question reports timely payments to both of your credit accounts, though, so you get the benefits on your credit history.
This option only works if you have someone willing to cosign for you. Since that person’s credit will take a hit if you don’t pay as agreed — and the lender can come after them for the payments — not everyone is up for this method.
4. Get Added as an Authorized User on Someone’s Credit Card
Another way to piggyback off someone else’s good credit is to get added as an authorized user on their credit card. You don’t even have to use their credit card for this to work. In some cases, the credit card company reports account status and payments to both people’s credit profiles. Have them ask their credit card company if this is the case, and make sure you pick someone who manages their account wisely and pays the monthly bill on time. Otherwise, you might get bad credit for your trouble because their missed payments will be reported on your credit history.
5. Apply for a Loan from Wise Loan
Wise Loan can help you build credit, but we don’t offer credit-building loans like those described in option 1 of this post. When you’re approved for a loan from Wise Loan, you get access to those funds. If you apply before 5:30 PM central and choose the instant funding option, you can even get the cash in your bank account on the same day you’re approved.
Wise Loan doesn’t require good credit for approval, but we do report to two of the major credit bureaus. Paying back your Wise Loan loan as agreed can help you build a positive payment history, ensuring you no longer have zero credit history. Apply now to get started building your credit for the future.
Whatever steps you take to start building your credit, make sure you’re making timely payments, keeping balances as low as possible and working realistically within your personal budget. Being responsible with your debt is one of the best ways of ensuring long-term good credit.